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Commercial Building Insurance: Coverage Types

What does commercial building insurance cover? It should include dwelling coverage, liability and business income protection at a minimum. Find out what you need to cover on your property today.
commercial building insurance

Are you in the market for a commercial or apartment building? Understanding all the costs of commercial real estate ownership is important. One of the most important and necessary protections is commercial building insurance. What is it, what does it cover, and what will it cost you?

What Does Commercial Building Insurance Cover?

Your commercial building insurance is both required and protects the property in case of damage or disaster. This coverage is for the structure and any other buildings on the property. It is generally called "dwelling" coverage.

Dwelling insurance protects the property from damage. Fire, wind and burst water pipes are examples of damage covered under this type of insurance.

There are a few important points to pay attention to your dwelling insurance. Dwelling coverage is the max your insurance company pays out for property damages.

Now, you might think that amount is what the property is worth. Unfortunately, that’s not true. The insurance company calculates it using the "replacement cost". Replacement cost is the actual cost to rebuild it, including labor and materials.

While you buy the building for a bargain price of $250,000, the costs to rebuild could be $400,000 for a similar building. Your insurance company will calculate your rates using the $400,000 amount. And that will means a higher premium to you.

The second form of insurance included in a commercial policy is liability insurance. Liability insurance coverage protects you if someone gets hurt on your property.

Some of the more common incidents include falling down stairs or tripping on a sidewalk. Your renters or tenants, while using your property, might experience these accidents. In these instances, it's your liability insurance that covers and protects you.

Business income protection is the third part of a commercial building insurance policy. Not as well known as dwelling or liability, it’s still critical. If there's damage to the property and your residents or tenants have to vacate, you will lose income. Your tenants no longer will pay rent. Business income coverage offers you protection from that loss of income.

Other Insurance Coverage Options

Sewer backup insurance is something that you ought to consider. Your rates will not increase a lot by adding this. And the expense that sewer damage can cause is significant. It's worth asking your agent about for your policy.

Flood insurance is only required in areas that are within flood zones. Understand that flooding from hurricanes is not covered by liability insurance. In general, flooding from external water damage is not covered by most policies. If you have flooding concerns for your property, adding flood insurance might be a smart idea.

Terrorism insurance is a rather new form of insurance coverage. This specific form of coverage came about after the attacks on 9/11. By 2002, the Terrorism Risk Insurance Program (TRIP) was created. This specific type of coverage is not needed in many areas.

If your property is in a high-risk area for terrorist acts, discussing this with your agent would be wise.

Are you buying a vacant or almost vacant property and renovating it? If so, the builder's risk insurance covers you during this time. Buildings under construction have a greater chance of damage, vandalism or contractor injuries.

While you might think your liability insurance would cover this, it will not. This insurance can cost as much as two to four time more than normal insurance policies.

Understanding your insurance coverage options is critical when buying a commercial property. It's important to understand what type of coverage you have as well as what will be your expense.

The costs of commercial insurance depend on several factors. Some of these include property location, size, type of structure as well as condition.

If you are a landlord or an investor, get in touch with an experienced local agent who specializes in investment properties today. They know commercial properties and can help you find the best commercial property to buy.

They'll guide you through the entire process, from commercial property hunting and applying for an investment loan to negotiations and closing. Your agent will help ensure a great outcome for your investment property.



Thomas O'Shaughnessy
Thomas O'Shaughnessy

Tommy O'Shaughnessy is the Head of Research at Clever Real Estate, the free online service that connects you with top local agents to save on commission. Tommy's team of data scientists create surveys, gather data, and analyze trends in housing, real estate, and personal finance. He directs public relations efforts, acting as a "data communicator" between his team and the press. Clever studies have been featured in Politico, the LA Times, CNBC, Forbes, Yahoo Finance, and other publications.

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